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1040 Ez Online Filing

1040 ez online filing Publication 542 - Main Content Table of Contents Businesses Taxed as CorporationsPersonal services. 1040 ez online filing Employee-owners. 1040 ez online filing Other rules. 1040 ez online filing Other rules. 1040 ez online filing Property Exchanged for StockNonqualified preferred stock. 1040 ez online filing Liabilities. 1040 ez online filing Election to reduce basis. 1040 ez online filing Capital Contributions Filing and Paying Income TaxesIncome Tax Return Penalties Estimated Tax U. 1040 ez online filing S. 1040 ez online filing Real Property Interest Accounting MethodsSection 481(a) adjustment. 1040 ez online filing Accounting Periods Recordkeeping Income, Deductions, and Special ProvisionsCosts of Going Into Business Related Persons Income From Qualifying Shipping Activities Election to Expense Qualified Refinery Property Deduction to Comply With EPA Sulfur Regulations Energy-Efficient Commercial Building Property Deduction Corporate Preference Items Dividends-Received Deduction Extraordinary Dividends Below-Market Loans Charitable Contributions Capital Losses Net Operating Losses At-Risk Limits Passive Activity Limits Figuring TaxTax Rate Schedule Alternative Minimum Tax (AMT) Credits Recapture Taxes Accumulated Earnings Tax Distributions to ShareholdersMoney or Property Distributions Distributions of Stock or Stock Rights Constructive Distributions Reporting Dividends and Other Distributions How To Get Tax Help Businesses Taxed as Corporations The rules you must use to determine whether a business is taxed as a corporation changed for businesses formed after 1996. 1040 ez online filing Business formed before 1997. 1040 ez online filing A business formed before 1997 and taxed as a corporation under the old rules will generally continue to be taxed as a corporation. 1040 ez online filing Business formed after 1996. 1040 ez online filing The following businesses formed after 1996 are taxed as corporations. 1040 ez online filing A business formed under a federal or state law that refers to it as a corporation, body corporate, or body politic. 1040 ez online filing A business formed under a state law that refers to it as a joint-stock company or joint-stock association. 1040 ez online filing An insurance company. 1040 ez online filing Certain banks. 1040 ez online filing A business wholly owned by a state or local government. 1040 ez online filing A business specifically required to be taxed as a corporation by the Internal Revenue Code (for example, certain publicly traded partnerships). 1040 ez online filing Certain foreign businesses. 1040 ez online filing Any other business that elects to be taxed as a corporation. 1040 ez online filing For example, a limited liability company (LLC) can elect to be treated as an association taxable as a corporation by filing Form 8832, Entity Classification Election. 1040 ez online filing For more information about LLCs, see Publication 3402, Taxation of Limited Liability Companies. 1040 ez online filing S corporations. 1040 ez online filing Some corporations may meet the qualifications for electing to be S corporations. 1040 ez online filing For information on S corporations, see the instructions for Form 1120S, U. 1040 ez online filing S. 1040 ez online filing Income Tax Return for an S Corporation. 1040 ez online filing Personal service corporations. 1040 ez online filing A corporation is a personal service corporation if it meets all of the following requirements. 1040 ez online filing Its principal activity during the “testing period” is performing personal services (defined later). 1040 ez online filing Generally, the testing period for any tax year is the prior tax year. 1040 ez online filing If the corporation has just been formed, the testing period begins on the first day of its tax year and ends on the earlier of: The last day of its tax year, or The last day of the calendar year in which its tax year begins. 1040 ez online filing Its employee-owners substantially perform the services in (1), above. 1040 ez online filing This requirement is met if more than 20% of the corporation's compensation cost for its activities of performing personal services during the testing period is for personal services performed by employee-owners. 1040 ez online filing Its employee-owners own more than 10% of the fair market value of its outstanding stock on the last day of the testing period. 1040 ez online filing Personal services. 1040 ez online filing Personal services include any activity performed in the fields of accounting, actuarial science, architecture, consulting, engineering, health (including veterinary services), law, and the performing arts. 1040 ez online filing Employee-owners. 1040 ez online filing A person is an employee-owner of a personal service corporation if both of the following apply. 1040 ez online filing He or she is an employee of the corporation or performs personal services for, or on behalf of, the corporation (even if he or she is an independent contractor for other purposes) on any day of the testing period. 1040 ez online filing He or she owns any stock in the corporation at any time during the testing period. 1040 ez online filing Other rules. 1040 ez online filing For other rules that apply to personal service corporations see Accounting Periods, later. 1040 ez online filing Closely held corporations. 1040 ez online filing A corporation is closely held if all of the following apply. 1040 ez online filing It is not a personal service corporation. 1040 ez online filing At any time during the last half of the tax year, more than 50% of the value of its outstanding stock is, directly or indirectly, owned by or for five or fewer individuals. 1040 ez online filing “Individual” includes certain trusts and private foundations. 1040 ez online filing Other rules. 1040 ez online filing For the at-risk rules that apply to closely held corporations, seeAt-Risk Limits, later. 1040 ez online filing Property Exchanged for Stock If you transfer property (or money and property) to a corporation in exchange for stock in that corporation (other than nonqualified preferred stock, described later), and immediately afterward you are in control of the corporation, the exchange is usually not taxable. 1040 ez online filing This rule applies both to individuals and to groups who transfer property to a corporation. 1040 ez online filing It also applies whether the corporation is being formed or is already operating. 1040 ez online filing It does not apply in the following situations. 1040 ez online filing The corporation is an investment company. 1040 ez online filing You transfer the property in a bankruptcy or similar proceeding in exchange for stock used to pay creditors. 1040 ez online filing The stock is received in exchange for the corporation's debt (other than a security) or for interest on the corporation's debt (including a security) that accrued while you held the debt. 1040 ez online filing Both the corporation and any person involved in a nontaxable exchange of property for stock must attach to their income tax returns a complete statement of all facts pertinent to the exchange. 1040 ez online filing For more information, see section 1. 1040 ez online filing 351-3 of the Regulations. 1040 ez online filing Control of a corporation. 1040 ez online filing To be in control of a corporation, you or your group of transferors must own, immediately after the exchange, at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the outstanding shares of each class of nonvoting stock. 1040 ez online filing Example 1. 1040 ez online filing You and Bill Jones buy property for $100,000. 1040 ez online filing You both organize a corporation when the property has a fair market value of $300,000. 1040 ez online filing You transfer the property to the corporation for all its authorized capital stock, which has a par value of $300,000. 1040 ez online filing No gain is recognized by you, Bill, or the corporation. 1040 ez online filing Example 2. 1040 ez online filing You and Bill transfer the property with a basis of $100,000 to a corporation in exchange for stock with a fair market value of $300,000. 1040 ez online filing This represents only 75% of each class of stock of the corporation. 1040 ez online filing The other 25% was already issued to someone else. 1040 ez online filing You and Bill recognize a taxable gain of $200,000 on the transaction. 1040 ez online filing Services rendered. 1040 ez online filing The term property does not include services rendered or to be rendered to the issuing corporation. 1040 ez online filing The value of stock received for services is income to the recipient. 1040 ez online filing Example. 1040 ez online filing You transfer property worth $35,000 and render services valued at $3,000 to a corporation in exchange for stock valued at $38,000. 1040 ez online filing Right after the exchange, you own 85% of the outstanding stock. 1040 ez online filing No gain is recognized on the exchange of property. 1040 ez online filing However, you recognize ordinary income of $3,000 as payment for services you rendered to the corporation. 1040 ez online filing Property of relatively small value. 1040 ez online filing The term property does not include property of a relatively small value when it is compared to the value of stock and securities already owned or to be received for services by the transferor if the main purpose of the transfer is to qualify for the nonrecognition of gain or loss by other transferors. 1040 ez online filing Property transferred will not be considered to be of relatively small value if its fair market value is at least 10% of the fair market value of the stock and securities already owned or to be received for services by the transferor. 1040 ez online filing Stock received in disproportion to property transferred. 1040 ez online filing If a group of transferors exchange property for corporate stock, each transferor does not have to receive stock in proportion to his or her interest in the property transferred. 1040 ez online filing If a disproportionate transfer takes place, it will be treated for tax purposes in accordance with its true nature. 1040 ez online filing It may be treated as if the stock were first received in proportion and then some of it used to make gifts, pay compensation for services, or satisfy the transferor's obligations. 1040 ez online filing Money or other property received. 1040 ez online filing If, in an otherwise nontaxable exchange of property for corporate stock, you also receive money or property other than stock, you may have to recognize gain. 1040 ez online filing You must recognize gain only up to the amount of money plus the fair market value of the other property you receive. 1040 ez online filing The rules for figuring the recognized gain in this situation generally follow those for a partially nontaxable exchange discussed in Publication 544 under Like-Kind Exchanges. 1040 ez online filing If the property you give up includes depreciable property, the recognized gain may have to be reported as ordinary income from depreciation. 1040 ez online filing See chapter 3 of Publication 544. 1040 ez online filing No loss is recognized. 1040 ez online filing Nonqualified preferred stock. 1040 ez online filing Nonqualified preferred stock is treated as property other than stock. 1040 ez online filing Generally, it is preferred stock with any of the following features. 1040 ez online filing The holder has the right to require the issuer or a related person to redeem or buy the stock. 1040 ez online filing The issuer or a related person is required to redeem or buy the stock. 1040 ez online filing The issuer or a related person has the right to redeem or buy the stock and, on the issue date, it is more likely than not that the right will be exercised. 1040 ez online filing The dividend rate on the stock varies with reference to interest rates, commodity prices, or similar indices. 1040 ez online filing For a detailed definition of nonqualified preferred stock, see section 351(g)(2) of the Internal Revenue Code. 1040 ez online filing Liabilities. 1040 ez online filing If the corporation assumes your liabilities, the exchange generally is not treated as if you received money or other property. 1040 ez online filing There are two exceptions to this treatment. 1040 ez online filing If the liabilities the corporation assumes are more than your adjusted basis in the property you transfer, gain is recognized up to the difference. 1040 ez online filing However, if the liabilities assumed give rise to a deduction when paid, such as a trade account payable or interest, no gain is recognized. 1040 ez online filing If there is no good business reason for the corporation to assume your liabilities, or if your main purpose in the exchange is to avoid federal income tax, the assumption is treated as if you received money in the amount of the liabilities. 1040 ez online filing For more information on the assumption of liabilities, see section 357(d) of the Internal Revenue Code. 1040 ez online filing Example. 1040 ez online filing You transfer property to a corporation for stock. 1040 ez online filing Immediately after the transfer, you control the corporation. 1040 ez online filing You also receive $10,000 in the exchange. 1040 ez online filing Your adjusted basis in the transferred property is $20,000. 1040 ez online filing The stock you receive has a fair market value (FMV) of $16,000. 1040 ez online filing The corporation also assumes a $5,000 mortgage on the property for which you are personally liable. 1040 ez online filing Gain is realized as follows. 1040 ez online filing FMV of stock received $16,000 Cash received 10,000 Liability assumed by corporation 5,000 Total received $31,000 Minus: Adjusted basis of property transferred 20,000 Realized gain $11,000 The liability assumed is not treated as money or other property. 1040 ez online filing The recognized gain is limited to $10,000, the cash received. 1040 ez online filing Loss on exchange. 1040 ez online filing If you have a loss from an exchange and own, directly or indirectly, more than 50% of the corporation's stock, you cannot deduct the loss. 1040 ez online filing For more information, see Nondeductible Loss under Sales and Exchanges Between Related Persons in chapter 2 of Publication 544. 1040 ez online filing Basis of stock or other property received. 1040 ez online filing The basis of the stock you receive is generally the adjusted basis of the property you transfer. 1040 ez online filing Increase this amount by any amount treated as a dividend, plus any gain recognized on the exchange. 1040 ez online filing Decrease this amount by any cash you received, the fair market value of any other property you received, and any loss recognized on the exchange. 1040 ez online filing Also decrease this amount by the amount of any liability the corporation or another party to the exchange assumed from you, unless payment of the liability gives rise to a deduction when paid. 1040 ez online filing Further decreases may be required when the corporation or another party to the exchange assumes from you a liability that gives rise to a deduction when paid, if the basis of the stock would otherwise be higher than its fair market value on the date of the exchange. 1040 ez online filing This rule does not apply if the entity assuming the liability acquired either substantially all of the assets or the trade or business with which the liability is associated. 1040 ez online filing The basis of any other property you receive is its fair market value on the date of the trade. 1040 ez online filing Basis of property transferred. 1040 ez online filing A corporation that receives property from you in exchange for its stock generally has the same basis you had in the property, increased by any gain you recognized on the exchange. 1040 ez online filing However, the increase for the gain recognized may be limited. 1040 ez online filing For more information, see section 362 of the Internal Revenue Code. 1040 ez online filing Election to reduce basis. 1040 ez online filing In a section 351 transaction, if the adjusted basis of the property transferred exceeds the property's fair market value, the transferor and transferee may make an irrevocable election to treat the basis of the stock received by the transferor as having a basis equal to the fair market value of the property transferred. 1040 ez online filing The transferor and transferee make this election by attaching a statement to their tax returns filed by the due date (including extensions) for the tax year in which the transaction occurred. 1040 ez online filing However, if the transferor makes the election by including the certification provided in Notice 2005-70, 2005-41, I. 1040 ez online filing R. 1040 ez online filing B. 1040 ez online filing 694, on or with its tax return filed by the due date (including extensions), then no election need be made by the transferee. 1040 ez online filing For more information on making this election, see section 362(e)(2)(C) of the Internal Revenue Code, and Notice 2005-70. 1040 ez online filing Capital Contributions This section explains the tax treatment of contributions from shareholders and nonshareholders. 1040 ez online filing Paid-in capital. 1040 ez online filing Contributions to the capital of a corporation, whether or not by shareholders, are paid-in capital. 1040 ez online filing These contributions are not taxable to the corporation. 1040 ez online filing Basis. 1040 ez online filing The corporation's basis of property contributed to capital by a shareholder is the same as the basis the shareholder had in the property, increased by any gain the shareholder recognized on the exchange. 1040 ez online filing However, the increase for the gain recognized may be limited. 1040 ez online filing For more information, see Basis of property transferred, above, and section 362 of the Internal Revenue Code. 1040 ez online filing The basis of property contributed to capital by a person other than a shareholder is zero. 1040 ez online filing If a corporation receives a cash contribution from a person other than a shareholder, the corporation must reduce the basis of any property acquired with the contribution during the 12-month period beginning on the day it received the contribution by the amount of the contribution. 1040 ez online filing If the amount contributed is more than the cost of the property acquired, then reduce, but not below zero, the basis of the other properties held by the corporation on the last day of the 12-month period in the following order. 1040 ez online filing Depreciable property. 1040 ez online filing Amortizable property. 1040 ez online filing Property subject to cost depletion but not to percentage depletion. 1040 ez online filing All other remaining properties. 1040 ez online filing Reduce the basis of property in each category to zero before going on to the next category. 1040 ez online filing There may be more than one piece of property in each category. 1040 ez online filing Base the reduction of the basis of each property on the following ratio: Basis of each piece of property Bases of all properties (within that category) If the corporation wishes to make this adjustment in some other way, it must get IRS approval. 1040 ez online filing The corporation files a request for approval with its income tax return for the tax year in which it receives the contribution. 1040 ez online filing Filing and Paying Income Taxes The federal income tax is a pay-as-you-go tax. 1040 ez online filing A corporation generally must make estimated tax payments as it earns or receives income during its tax year. 1040 ez online filing After the end of the year, the corporation must file an income tax return. 1040 ez online filing This section will help you determine when and how to pay and file corporate income taxes. 1040 ez online filing For certain corporations affected by Presidentially declared disasters such as hurricanes, the due dates for filing returns, paying taxes, and performing other time-sensitive acts may be extended. 1040 ez online filing The IRS may also forgive the interest and penalties on any underpaid tax for the length of any extension. 1040 ez online filing For more information, visit www. 1040 ez online filing irs. 1040 ez online filing gov/newsroom/article/0,,id=108362. 1040 ez online filing 00. 1040 ez online filing Income Tax Return This section will help you determine when and how to report a corporation's income tax. 1040 ez online filing Who must file. 1040 ez online filing Unless exempt under section 501 of the Internal Revenue Code, all domestic corporations in existence for any part of a tax year (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income. 1040 ez online filing Which form to file. 1040 ez online filing A corporation generally must file Form 1120, U. 1040 ez online filing S. 1040 ez online filing Corporation Income Tax Return, to report its income, gains, losses, deductions, credits, and to figure its income tax liability. 1040 ez online filing Certain organizations and entities must file special returns. 1040 ez online filing For more information, see Special Returns for Certain Organizations, in the Instructions for Form 1120. 1040 ez online filing Electronic filing. 1040 ez online filing Corporations can generally electronically file (e-file) Form 1120 and certain related forms, schedules, and attachments. 1040 ez online filing Certain corporations with total assets of $10 million or more, that file at least 250 returns a year must e-file Form 1120. 1040 ez online filing However, in certain instances, these corporations can request a waiver. 1040 ez online filing For more information regarding electronic filing, visit www. 1040 ez online filing irs. 1040 ez online filing gov/efile. 1040 ez online filing When to file. 1040 ez online filing Generally, a corporation must file its income tax return by the 15th day of the 3rd month after the end of its tax year. 1040 ez online filing A new corporation filing a short-period return must generally file by the 15th day of the 3rd month after the short period ends. 1040 ez online filing A corporation that has dissolved must generally file by the 15th day of the 3rd month after the date it dissolved. 1040 ez online filing Example 1. 1040 ez online filing A corporation's tax year ends December 31. 1040 ez online filing It must file its income tax return by March 15th. 1040 ez online filing Example 2. 1040 ez online filing A corporation's tax year ends June 30. 1040 ez online filing It must file its income tax return by September 15th. 1040 ez online filing If the due date falls on a Saturday, Sunday, or legal holiday, the due date is extended to the next business day. 1040 ez online filing Extension of time to file. 1040 ez online filing File Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information and Other Returns, to request an extension of time to file a corporation income tax return. 1040 ez online filing The IRS will grant the extension if you complete the form properly, file it, and pay any tax due by the original due date for the return. 1040 ez online filing Form 7004 does not extend the time for paying the tax due on the return. 1040 ez online filing Interest, and possibly penalties, will be charged on any part of the final tax due not shown as a balance due on Form 7004. 1040 ez online filing The interest is figured from the original due date of the return to the date of payment. 1040 ez online filing For more information, see the instructions for Form 7004. 1040 ez online filing How to pay your taxes. 1040 ez online filing A corporation must pay its tax due in full no later than the 15th day of the 3rd month after the end of its tax year. 1040 ez online filing Electronic Federal Tax Payment System (EFTPS). 1040 ez online filing Corporations generally must use EFTPS to make deposits of all tax liabilities (including social security, Medicare, withheld income, excise, and corporate income taxes). 1040 ez online filing For more information on EFTPS and enrollment, visit www. 1040 ez online filing eftps. 1040 ez online filing gov or call 1-800-555-4477. 1040 ez online filing Also see Publication 966, The Secure Way to Pay Your Federal Taxes. 1040 ez online filing Note. 1040 ez online filing Forms 8109 and 8109-B, Federal Tax Deposit Coupon, can no longer be used to make federal tax deposits. 1040 ez online filing Penalties Generally, if the corporation receives a notice about interest and penalties after it files its return, send the IRS an explanation and we will determine if the corporation meets reasonable-cause criteria. 1040 ez online filing Do not attach an explanation when the corporation's return is filed. 1040 ez online filing See the instructions for your income tax return. 1040 ez online filing Late filing of return. 1040 ez online filing A corporation that does not file its tax return by the due date, including extensions, may be penalized 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. 1040 ez online filing If the corporation is charged a penalty for late payment of tax (discussed next) for the same period of time, the penalty for late filing is reduced by the amount of the penalty for late payment. 1040 ez online filing The minimum penalty for a return that is over 60 days late is the smaller of the tax due or $100. 1040 ez online filing The penalty will not be imposed if the corporation can show the failure to file on time was due to a reasonable cause. 1040 ez online filing Late payment of tax. 1040 ez online filing A corporation that does not pay the tax when due may be penalized ½ of 1% of the unpaid tax for each month or part of a month the tax is not paid, up to a maximum of 25% of the unpaid tax. 1040 ez online filing The penalty will not be imposed if the corporation can show that the failure to pay on time was due to a reasonable cause. 1040 ez online filing Trust fund recovery penalty. 1040 ez online filing If income, social security, and Medicare taxes that a corporation must withhold from employee wages are not withheld or are not deposited or paid to the United States Treasury, the trust fund recovery penalty may apply. 1040 ez online filing The penalty is the full amount of the unpaid trust fund tax. 1040 ez online filing This penalty may apply to you if these unpaid taxes cannot be immediately collected from the business. 1040 ez online filing The trust fund recovery penalty may be imposed on all persons who are determined by the IRS to be responsible for collecting, accounting for, and paying these taxes, and who acted willfully in not doing so. 1040 ez online filing A responsible person can be an officer or employee of a corporation, an accountant, or a volunteer director/trustee. 1040 ez online filing A responsible person also may include one who signs checks for the corporation or otherwise has authority to cause the spending of business funds. 1040 ez online filing Willfully means voluntarily, consciously, and intentionally. 1040 ez online filing A responsible person acts willfully if the person knows the required actions are not taking place. 1040 ez online filing For more information on withholding and paying these taxes, see Publication 15 (Circular E), Employer's Tax Guide, and Publication 51, (Circular A), Agricultural Employer's Tax Guide. 1040 ez online filing Other penalties. 1040 ez online filing Other penalties can be imposed for negligence, substantial understatement of tax, reportable transaction understatements, and fraud. 1040 ez online filing See sections 6662, 6662A, and 6663 of the Internal Revenue Code. 1040 ez online filing Estimated Tax Generally, a corporation must make installment payments if it expects its estimated tax for the year to be $500 or more. 1040 ez online filing If the corporation does not pay the installments when they are due, it could be subject to an underpayment penalty. 1040 ez online filing This section will explain how to avoid this penalty. 1040 ez online filing When to pay estimated tax. 1040 ez online filing Installment payments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporation's tax year. 1040 ez online filing Example 1. 1040 ez online filing Your corporation's tax year ends December 31. 1040 ez online filing Installment payments are due on April 15, June 15, September 15, and December 15. 1040 ez online filing Example 2. 1040 ez online filing Your corporation's tax year ends June 30. 1040 ez online filing Installment payments are due on October 15, December 15, March 15, and June 15. 1040 ez online filing If any due date falls on a Saturday, Sunday, or legal holiday, the installment is due on the next business day. 1040 ez online filing How to figure each required installment. 1040 ez online filing Use Form 1120-W, Estimated Tax for Corporations, as a worksheet to figure each required installment of estimated tax. 1040 ez online filing You will generally use one of the following two methods to figure each required installment. 1040 ez online filing You should use the method that yields the smallest installment payments. 1040 ez online filing Note. 1040 ez online filing In these discussions, “return” generally refers to the corporation's original return. 1040 ez online filing However, an amended return is considered the original return if it is filed by the due date (including extensions) of the original return. 1040 ez online filing Method 1. 1040 ez online filing Each required installment is 25% of the income tax the corporation will show on its return for the current year. 1040 ez online filing Method 2. 1040 ez online filing Each required installment is 25% of the income tax shown on the corporation's return for the previous year. 1040 ez online filing To use Method 2: The corporation must have filed a return for the previous year, The return must have been for a full 12 months, and The return must have shown a positive tax liability (not zero). 1040 ez online filing Also, if the corporation is a large corporation, it can use Method 2 to figure the first installment only. 1040 ez online filing See the Instructions for Form 1120-W, for the definition of a large corporation and other special rules for large corporations. 1040 ez online filing Other methods. 1040 ez online filing If a corporation's income is expected to vary during the year because, for example, its business is seasonal, it may be able to lower the amount of one or more required installments by using one or both of the following methods. 1040 ez online filing The annualized income installment method. 1040 ez online filing The adjusted seasonal installment method. 1040 ez online filing Use Schedule A of Form 1120-W to determine if using one or both of these methods will lower the amount of any required installments. 1040 ez online filing Refiguring required installments. 1040 ez online filing If after the corporation figures and deposits its estimated tax it finds that its tax liability for the year will be more or less than originally estimated, it may have to refigure its required installments to see if an underpayment penalty may apply. 1040 ez online filing An immediate catchup payment should be made to reduce any penalty resulting from the underpayment of any earlier installments. 1040 ez online filing Underpayment penalty. 1040 ez online filing If the corporation does not pay a required installment of estimated tax by its due date, it may be subject to a penalty. 1040 ez online filing The penalty is figured separately for each installment due date. 1040 ez online filing The corporation may owe a penalty for an earlier due date, even if it paid enough tax later to make up the underpayment. 1040 ez online filing This is true even if the corporation is due a refund when its return is filed. 1040 ez online filing Form 2220. 1040 ez online filing Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine if a corporation is subject to the penalty for underpayment of estimated tax and to figure the amount of the penalty. 1040 ez online filing If the corporation is charged a penalty, the amount of the penalty depends on the following three factors. 1040 ez online filing The amount of the underpayment. 1040 ez online filing The period during which the underpayment was due and unpaid. 1040 ez online filing The interest rate for underpayments published quarterly by the IRS in the Internal Revenue Bulletin. 1040 ez online filing A corporation generally does not have to file Form 2220 with its income tax return because the IRS will figure any penalty and bill the corporation. 1040 ez online filing However, even if the corporation does not owe a penalty, complete and attach the form to the corporation's tax return if any of the following apply. 1040 ez online filing The annualized income installment method was used to figure any required installment. 1040 ez online filing The adjusted seasonal installment method was used to figure any required installment. 1040 ez online filing The corporation is a large corporation figuring its first required installment based on the prior year's tax. 1040 ez online filing How to pay estimated tax. 1040 ez online filing A corporation is generally required to use EFTPS to pay its taxes. 1040 ez online filing See Electronic Federal Tax Payment System (EFTPS), earlier. 1040 ez online filing Also see the Instructions for Form 1120-W. 1040 ez online filing Quick refund of overpayments. 1040 ez online filing A corporation that has overpaid its estimated tax for the tax year may be able to apply for a quick refund. 1040 ez online filing Use Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax, to apply for a quick refund of an overpayment of estimated tax. 1040 ez online filing A corporation can apply for a quick refund if the overpayment is: At least 10% of its expected tax liability, and At least $500. 1040 ez online filing Use Form 4466 to figure the corporation's expected tax liability and the overpayment of estimated tax. 1040 ez online filing File Form 4466 before the 16th day of the 3rd month after the end of the tax year, but before the corporation files its income tax return. 1040 ez online filing Do not file Form 4466 before the end of the corporation's tax year. 1040 ez online filing An extension of time to file the corporation's income tax return will not extend the time for filing Form 4466. 1040 ez online filing The IRS will act on the form within 45 days from the date you file it. 1040 ez online filing U. 1040 ez online filing S. 1040 ez online filing Real Property Interest If a domestic corporation acquires a U. 1040 ez online filing S. 1040 ez online filing real property interest from a foreign person or firm, the corporation may have to withhold tax on the amount it pays for the property. 1040 ez online filing The amount paid includes cash, the fair market value of other property, and any assumed liability. 1040 ez online filing If a domestic corporation distributes a U. 1040 ez online filing S. 1040 ez online filing real property interest to a foreign person or firm, it may have to withhold tax on the fair market value of the property. 1040 ez online filing A corporation that fails to withhold may be liable for the tax, and any penalties and interest that apply. 1040 ez online filing For more information, see section 1445 of the Internal Revenue Code; Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities; Form 8288, U. 1040 ez online filing S. 1040 ez online filing Withholding Tax Return for Dispositions by Foreign Persons of U. 1040 ez online filing S. 1040 ez online filing Real Property Interests; and Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U. 1040 ez online filing S. 1040 ez online filing Real Property Interests. 1040 ez online filing Accounting Methods An accounting method is a set of rules used to determine when and how income and expenses are reported. 1040 ez online filing Taxable income should be determined using the method of accounting regularly used in keeping the corporation's books and records. 1040 ez online filing In all cases, the method used must clearly show taxable income. 1040 ez online filing Generally, permissible methods include: Cash, Accrual, or Any other method authorized by the Internal Revenue Code. 1040 ez online filing Accrual method. 1040 ez online filing Generally, a corporation (other than a qualified personal service corporation) must use the accrual method of accounting if its average annual gross receipts exceed $5 million. 1040 ez online filing A corporation engaged in farming operations also must use the accrual method. 1040 ez online filing If inventories are required, the accrual method generally must be used for sales and purchases of merchandise. 1040 ez online filing However, qualifying taxpayers and eligible businesses of qualifying small business taxpayers are excepted from using the accrual method for eligible trades or businesses and may account for inventoriable items as materials and supplies that are not incidental. 1040 ez online filing Under the accrual method, an amount is includable in income when: All the events have occurred that fix the right to receive the income, which is the earliest of the date: The required performance takes place, Payment is due, or Payment is received; and The amount can be determined with reasonable accuracy. 1040 ez online filing Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year when: All events that determine the liability have occurred, The amount of the liability can be figured with reasonable accuracy, and Economic performance takes place with respect to the expense. 1040 ez online filing There are exceptions to the economic performance rule for certain items, including recurring expenses. 1040 ez online filing See section 461(h) of the Internal Revenue Code and the related regulations for the rules for determining when economic performance takes place. 1040 ez online filing Nonaccrual experience method. 1040 ez online filing Accrual method corporations are not required to maintain accruals for certain amounts from the performance of services that, on the basis of their experience, will not be collected, if: The services are in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting; or The corporation's average annual gross receipts for the 3 prior tax years does not exceed $5 million. 1040 ez online filing This provision does not apply if interest is required to be paid on the amount or if there is any penalty for failure to pay the amount timely. 1040 ez online filing Percentage of completion method. 1040 ez online filing Long-term contracts (except for certain real property construction contracts) must generally be accounted for using the percentage of completion method described in section 460 of the Internal Revenue Code. 1040 ez online filing Mark-to-market accounting method. 1040 ez online filing Generally, dealers in securities must use the mark-to-market accounting method described in section 475 of the Internal Revenue Code. 1040 ez online filing Under this method any security held by a dealer as inventory must be included in inventory at its FMV. 1040 ez online filing Any security not held as inventory at the close of the tax year is treated as sold at its FMV on the last business day of the tax year. 1040 ez online filing Any gain or loss must be taken into account in determining gross income. 1040 ez online filing The gain or loss taken into account is treated as ordinary gain or loss. 1040 ez online filing Dealers in commodities and traders in securities and commodities can elect to use the mark-to-market accounting method. 1040 ez online filing Change in accounting method. 1040 ez online filing A corporation can change its method of accounting used to report taxable income (for income as a whole or for the treatment of any material item). 1040 ez online filing The corporation must file Form 3115, Application for Change in Accounting Method. 1040 ez online filing For more information, see Form 3115 and Publication 538. 1040 ez online filing Section 481(a) adjustment. 1040 ez online filing The corporation may have to make an adjustment under section 481(a) of the Internal Revenue Code to prevent amounts of income or expense from being duplicated or omitted. 1040 ez online filing The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. 1040 ez online filing However, a corporation can elect to use a 1-year adjustment period if the net section 481(a) adjustment for the change is less than $25,000. 1040 ez online filing The corporation must complete the appropriate lines of Form 3115 to make the election. 1040 ez online filing See the Instructions for Form 3115. 1040 ez online filing Accounting Periods A corporation must figure its taxable income on the basis of a tax year. 1040 ez online filing A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. 1040 ez online filing Generally, corporations can use either a calendar year or a fiscal year as its tax year. 1040 ez online filing Unless special rules apply, a corporation generally adopts a tax year by filing its first federal income tax return using that tax year. 1040 ez online filing For more information, see Publication 538. 1040 ez online filing Personal service corporation. 1040 ez online filing A personal service corporation must use a calendar year as its tax year unless: It elects to use a 52–53 week tax year that ends with reference to the calendar year; It can establish a business purpose for a different tax year and obtains approval of the IRS. 1040 ez online filing See Form 1128, Application To Adopt, Change, or Retain a Tax Year, and Publication 538; or It elects under section 444 of the Internal Revenue Code to have a tax year other than a calendar year. 1040 ez online filing Use Form 8716, Election to Have a Tax Year Other Than a Required Tax Year, to make the election. 1040 ez online filing If a personal service corporation makes a section 444 election, its deduction for certain amounts paid to employee-owners may be limited. 1040 ez online filing See Schedule H (Form 1120), Section 280H Limitations for a Personal Service Corporation (PSC), to figure the maximum deduction. 1040 ez online filing Change of tax year. 1040 ez online filing Generally, a corporation must get the consent of the IRS before changing its tax year by filing Form 1128. 1040 ez online filing However, under certain conditions, a corporation can change its tax year without getting the consent. 1040 ez online filing For more information, see Form 1128 and Publication 538. 1040 ez online filing Recordkeeping A corporation should keep its records for as long as they may be needed for the administration of any provision of the Internal Revenue Code. 1040 ez online filing Usually records that support items of income, deductions, or credits on the return must be kept for 3 years from the date the return is due or filed, whichever is later. 1040 ez online filing Keep records that verify the corporation's basis in property for as long as they are needed to figure the basis of the original or replacement property. 1040 ez online filing The corporation should keep copies of all filed returns. 1040 ez online filing They help in preparing future and amended returns and in the calculation of earnings and profits. 1040 ez online filing Income, Deductions, and Special Provisions Rules on income and deductions that apply to individuals also apply, for the most part, to corporations. 1040 ez online filing However, the following special provisions apply only to corporations. 1040 ez online filing Costs of Going Into Business When you go into business, treat all costs you incur to get your business started as capital expenses. 1040 ez online filing However, a corporation can elect to deduct a limited amount of start-up or organizational costs. 1040 ez online filing Any costs not deducted can be amortized. 1040 ez online filing Start-up costs are costs for creating an active trade or business or investigating the creation or acquisition of an active trade or business. 1040 ez online filing Organizational costs are the direct costs of creating the corporation. 1040 ez online filing For more information on deducting or amortizing start-up and organizational costs, see the instructions for your income tax return. 1040 ez online filing Also see, Publication 535, chapter 7, Costs You Can Deduct or Capitalize, and chapter 8, Amortization. 1040 ez online filing Related Persons A corporation that uses an accrual method of accounting cannot deduct business expenses and interest owed to a related person who uses the cash method of accounting until the corporation makes the payment and the corresponding amount is includible in the related person's gross income. 1040 ez online filing Determine the relationship, for this rule, as of the end of the tax year for which the expense or interest would otherwise be deductible. 1040 ez online filing If a deduction is denied, the rule will continue to apply even if the corporation's relationship with the person ends before the expense or interest is includible in the gross income of that person. 1040 ez online filing These rules also deny the deduction of losses on the sale or exchange of property between related persons. 1040 ez online filing Related persons. 1040 ez online filing For purposes of this rule, the following persons are related to a corporation. 1040 ez online filing Another corporation, that is a member of the same controlled group (as defined in section 267(f) of the Internal Revenue Code). 1040 ez online filing An individual who owns, directly or indirectly, more than 50% of the value of the outstanding stock of the corporation. 1040 ez online filing A trust fiduciary, when the trust or the grantor of the trust owns, directly or indirectly, more than 50% in value of the outstanding stock of the corporation. 1040 ez online filing An S corporation, if the same persons own more than 50% in value of the outstanding stock of each corporation. 1040 ez online filing A partnership, if the same persons own more than 50% in value of the outstanding stock of the corporation and more than 50% of the capital or profits interest in the partnership. 1040 ez online filing Any employee-owner, if the corporation is a personal service corporation (see Personal service corporation, earlier), regardless of the amount of stock owned by the employee-owner. 1040 ez online filing Ownership of stock. 1040 ez online filing To determine whether an individual directly or indirectly owns any of the outstanding stock of a corporation, the following apply. 1040 ez online filing Stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, is treated as being owned proportionately by or for its shareholders, partners, or beneficiaries. 1040 ez online filing An individual is treated as owning the stock owned, directly or indirectly, by or for the individual's family. 1040 ez online filing Family includes only brothers and sisters (including half brothers and half sisters), a spouse, ancestors, and lineal descendants. 1040 ez online filing Any individual owning (other than by applying (2), above) stock in a corporation, is treated as also owning the stock owned directly or indirectly by that individual's partner. 1040 ez online filing To apply (1), (2), or (3), above, stock constructively owned by a person under (1) is treated as actually owned by that person. 1040 ez online filing But stock constructively owned by an individual under (2) or (3) is not treated as actually owned by the individual for applying either (2) or (3) to make another person the constructive owner of that stock. 1040 ez online filing Reallocation of income and deductions. 1040 ez online filing Where it is necessary to clearly show income or prevent tax evasion, the IRS can reallocate gross income, deductions, credits, or allowances between two or more organizations, trades, or businesses owned or controlled directly, or indirectly, by the same interests. 1040 ez online filing Complete liquidations. 1040 ez online filing The disallowance of losses from the sale or exchange of property between related persons does not apply to liquidating distributions. 1040 ez online filing More information. 1040 ez online filing For more information about the related person rules, see Publication 544. 1040 ez online filing Income From Qualifying Shipping Activities A corporation may make an election to be taxed on its notional shipping income at the highest corporate tax rate. 1040 ez online filing If a corporation makes this election it may exclude income from qualifying shipping activities from gross income. 1040 ez online filing Also if the election is made, the corporation generally may not claim any loss, deduction, or credit with respect to qualifying shipping activities. 1040 ez online filing A corporation making this election may also elect to defer gain on the disposition of a qualifying vessel. 1040 ez online filing A corporation uses Form 8902, Alternative Tax on Qualifying Shipping Activities, to make the election and figure the alternative tax. 1040 ez online filing For more information regarding the election, see Form 8902. 1040 ez online filing Election to Expense Qualified Refinery Property A corporation can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct 50% of the cost of qualified refinery property (defined in section 179C(c) of the Internal Revenue Code), placed in service before January 1, 2014. 1040 ez online filing The deduction is allowed for the year in which the property is placed in service. 1040 ez online filing A subchapter T cooperative can make an irrevocable election on its return by the due date (including extensions) to allocate this deduction to its owners based on their ownership interest. 1040 ez online filing For more information, see section 179C of the Internal Revenue Code and the related Regulations. 1040 ez online filing Deduction to Comply With EPA Sulfur Regulations A small business refiner can make an irrevocable election on its tax return filed by the due date (including extensions) to deduct up to 75% of qualified costs paid or incurred to comply with the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency (EPA). 1040 ez online filing A subchapter T cooperative can make an irrevocable election on its return filed by the due date (including extensions) to allocate the deduction to its owners based on their ownership interest. 1040 ez online filing For more information, see sections 45H and 179B of the Internal Revenue Code and the related Regulations. 1040 ez online filing Energy-Efficient Commercial Building Property Deduction A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service before January 1, 2014. 1040 ez online filing In order to qualify for the deduction: The costs must be associated with depreciable or amortizable property in a Standard 90. 1040 ez online filing 1-2001 domestic building; The property must be either a part of the interior lighting system, the heating, cooling, ventilation and hot water system, or the building envelope (defined in section 179D(c)(1)(C) of the Internal Revenue Code); and The property must be installed as part of a plan to reduce the total annual energy and power costs of the building by 50% or more. 1040 ez online filing The deduction is limited to $1. 1040 ez online filing 80 per square foot of the building less the total amount of deductions taken for this property in prior tax years. 1040 ez online filing Other rules and limitations apply. 1040 ez online filing The corporation must reduce the basis of any property by any deduction taken. 1040 ez online filing The deduction is subject to recapture if the corporation fails to fully implement an energy savings plan. 1040 ez online filing For more information, see section 179D of the Internal Revenue Code. 1040 ez online filing Also see Notice 2006-52, 2006-26 I. 1040 ez online filing R. 1040 ez online filing B. 1040 ez online filing 1175, clarified and amplified by Notice 2008-40, 2008-14 I. 1040 ez online filing R. 1040 ez online filing B. 1040 ez online filing 725, and any successor. 1040 ez online filing Corporate Preference Items A corporation must make special adjustments to certain items before it takes them into account in determining its taxable income. 1040 ez online filing These items are known as corporate preference items and they include the following. 1040 ez online filing Gain on the disposition of section 1250 property. 1040 ez online filing For more information, see section 1250 Property under Depreciation Recapture in chapter 3 of Publication 544. 1040 ez online filing Percentage depletion for iron ore and coal (including lignite). 1040 ez online filing For more information, see Mines and Geothermal Deposits under Mineral Property in chapter 9 of Publication 535. 1040 ez online filing Amortization of pollution control facilities. 1040 ez online filing For more information, see Pollution Control Facilities in chapter 8 of Publication 535 and section 291(a)(5) of the Internal Revenue Code. 1040 ez online filing Mineral exploration and development costs. 1040 ez online filing For more information, see Exploration Costs and Development Costs in chapter 7 of Publication 535. 1040 ez online filing For more information on corporate preference items, see section 291 of the Internal Revenue Code. 1040 ez online filing Dividends-Received Deduction A corporation can deduct a percentage of certain dividends received during its tax year. 1040 ez online filing This section discusses the general rules that apply. 1040 ez online filing The deduction is figured on Form 1120, Schedule C, or the applicable schedule of your income tax return. 1040 ez online filing For more information, see the Instructions for Form 1120, or the instructions for your applicable income tax return. 1040 ez online filing Dividends from domestic corporations. 1040 ez online filing A corporation can deduct, within certain limits, 70% of the dividends received if the corporation receiving the dividend owns less than 20% of the corporation distributing the dividend. 1040 ez online filing If the corporation owns 20% or more of the distributing corporation's stock, it can, subject to certain limits, deduct 80% of the dividends received. 1040 ez online filing Ownership. 1040 ez online filing Determine ownership, for these rules, by the amount of voting power and value of the paying corporation's stock (other than certain preferred stock) the receiving corporation owns. 1040 ez online filing Small business investment companies. 1040 ez online filing Small business investment companies can deduct 100% of the dividends received from taxable domestic corporations. 1040 ez online filing Dividends from regulated investment companies. 1040 ez online filing Regulated investment company dividends received are subject to certain limits. 1040 ez online filing Capital gain dividends received from a regulated investment company do not qualify for the deduction. 1040 ez online filing For more information, see section 854 of the Internal Revenue Code. 1040 ez online filing No deduction allowed for certain dividends. 1040 ez online filing Corporations cannot take a deduction for dividends received from the following entities. 1040 ez online filing A real estate investment trust (REIT). 1040 ez online filing A corporation exempt from tax under section 501 or 521 of the Internal Revenue Code either for the tax year of the distribution or the preceding tax year. 1040 ez online filing A corporation whose stock was held less than 46 days during the 91-day period beginning 45 days before the stock became ex-dividend with respect to the dividend. 1040 ez online filing Ex-dividend means the holder has no rights to the dividend. 1040 ez online filing A corporation whose preferred stock was held less than 91 days during the 181-day period beginning 90 days before the stock became ex-dividend with respect to the dividend if the dividends received are for a period or periods totaling more than 366 days. 1040 ez online filing Any corporation, if your corporation is under an obligation (pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. 1040 ez online filing Dividends on deposits. 1040 ez online filing Dividends on deposits or withdrawable accounts in domestic building and loan associations, mutual savings banks, cooperative banks, and similar organizations are interest, not dividends. 1040 ez online filing They do not qualify for this deduction. 1040 ez online filing Limit on deduction for dividends. 1040 ez online filing The total deduction for dividends received or accrued is generally limited (in the following order) to: 80% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from 20%-owned corporations, then 70% of the difference between taxable income and the 100% deduction allowed for dividends received from affiliated corporations, or by a small business investment company, for dividends received or accrued from less-than-20%-owned corporations (reducing taxable income by the total dividends received from 20%-owned corporations). 1040 ez online filing Figuring the limit. 1040 ez online filing In figuring the limit, determine taxable income without the following items. 1040 ez online filing The net operating loss deduction. 1040 ez online filing The domestic production activities deduction. 1040 ez online filing The deduction for dividends received. 1040 ez online filing Any adjustment due to the nontaxable part of an extraordinary dividend (see Extraordinary Dividends, below). 1040 ez online filing Any capital loss carryback to the tax year. 1040 ez online filing Effect of net operating loss. 1040 ez online filing If a corporation has a net operating loss (NOL) for a tax year, the limit of 80% (or 70%) of taxable income does not apply. 1040 ez online filing To determine whether a corporation has an NOL, figure the dividends-received deduction without the 80% (or 70%) of taxable income limit. 1040 ez online filing Example 1. 1040 ez online filing A corporation loses $25,000 from operations. 1040 ez online filing It receives $100,000 in dividends from a 20%-owned corporation. 1040 ez online filing Its taxable income is $75,000 ($100,000 – $25,000) before the deduction for dividends received. 1040 ez online filing If it claims the full dividends-received deduction of $80,000 ($100,000 × 80%) and combines it with an operations loss of $25,000, it will have an NOL of ($5,000). 1040 ez online filing Therefore, the 80% of taxable income limit does not apply. 1040 ez online filing The corporation can deduct the full $80,000. 1040 ez online filing Example 2. 1040 ez online filing Assume the same facts as in Example 1, except that the corporation only loses $15,000 from operations. 1040 ez online filing Its taxable income is $85,000 before the deduction for dividends received. 1040 ez online filing After claiming the dividends-received deduction of $80,000 ($100,000 × 80%), its taxable income is $5,000. 1040 ez online filing Because the corporation will not have an NOL after applying a full dividends-received deduction, its allowable dividends-received deduction is limited to 80% of its taxable income, or $68,000 ($85,000 × 80%). 1040 ez online filing Extraordinary Dividends If a corporation receives an extraordinary dividend on stock held 2 years or less before the dividend announcement date, it generally must reduce its basis in the stock by the nontaxed part of the dividend. 1040 ez online filing The nontaxed part is any dividends-received deduction allowable for the dividends. 1040 ez online filing Extraordinary dividend. 1040 ez online filing An extraordinary dividend is any dividend on stock that equals or exceeds a certain percentage of the corporation's adjusted basis in the stock. 1040 ez online filing The percentages are: 5% for stock preferred as to dividends, or 10% for other stock. 1040 ez online filing Treat all dividends received that have ex-dividend dates within an 85-consecutive-day period as one dividend. 1040 ez online filing Treat all dividends received that have ex-dividend dates within a 365-consecutive-day period as extraordinary dividends if the total of the dividends exceeds 20% of the corporation's adjusted basis in the stock. 1040 ez online filing Disqualified preferred stock. 1040 ez online filing Any dividend on disqualified preferred stock is treated as an extraordinary dividend regardless of the period of time the corporation held the stock. 1040 ez online filing Disqualified preferred stock is any stock preferred as to dividends if any of the following apply. 1040 ez online filing The stock when issued has a dividend rate that declines (or can reasonably be expected to decline) in the future. 1040 ez online filing The issue price of the stock exceeds its liquidation rights or stated redemption price. 1040 ez online filing The stock is otherwise structured to avoid the rules for extraordinary dividends and to enable corporate shareholders to reduce tax through a combination of dividends-received deductions and loss on the disposition of the stock. 1040 ez online filing These rules apply to stock issued after July 10, 1989, unless it was issued under a written binding contract in effect on that date, and thereafter, before the issuance of the stock. 1040 ez online filing More information. 1040 ez online filing For more information on extraordinary dividends, see section 1059 of the Internal Revenue Code. 1040 ez online filing Below-Market Loans If a corporation receives a below-market loan and uses the proceeds for its trade or business, it may be able to deduct the forgone interest. 1040 ez online filing A below-market loan is a loan on which no interest is charged or on which interest is charged at a rate below the applicable federal rate. 1040 ez online filing A below-market loan generally is treated as an arm's-length transaction in which the borrower is considered as having received both the following: A loan in exchange for a note that requires payment of interest at the applicable federal rate, and An additional payment in an amount equal to the forgone interest. 1040 ez online filing Treat the additional payment as a gift, dividend, contribution to capital, payment of compensation, or other payment, depending on the substance of the transaction. 1040 ez online filing Foregone interest. 1040 ez online filing For any period, forgone interest is equal to: The interest that would be payable for that period if interest accrued on the loan at the applicable federal rate and was payable annually on December 31, minus Any interest actually payable on the loan for the period. 1040 ez online filing See Below-market loans, in chapter 4 of Publication 535 for more information. 1040 ez online filing Charitable Contributions A corporation can claim a limited deduction for charitable contributions made in cash or other property. 1040 ez online filing The contribution is deductible if made to, or for the use of, a qualified organization. 1040 ez online filing For more information on qualified organizations, see Publication 526, Charitable Contributions. 1040 ez online filing Also see, Exempt Organizations Select Check (EO Select Check) at www. 1040 ez online filing irs. 1040 ez online filing gov/charities, the on-line search tool for finding information on organizations eligible to receive tax-deductible contributions. 1040 ez online filing Note. 1040 ez online filing You cannot take a deduction if any of the net earnings of an organization receiving contributions benefit any private shareholder or individual. 1040 ez online filing Cash method corporation. 1040 ez online filing A corporation using the cash method of accounting deducts contributions in the tax year paid. 1040 ez online filing Accrual method corporation. 1040 ez online filing A corporation using an accrual method of accounting can choose to deduct unpaid contributions for the tax year the board of directors authorizes them if it pays them by the 15th day of the 3rd month after the close of that tax year. 1040 ez online filing Make the choice by reporting the contribution on the corporation's return for the tax year. 1040 ez online filing A declaration stating that the board of directors adopted the resolution during the tax year must accompany the return. 1040 ez online filing The declaration must include the date the resolution was adopted. 1040 ez online filing Limitations on deduction. 1040 ez online filing A corporation cannot deduct charitable contributions that exceed 10% of its taxable income for the tax year. 1040 ez online filing Figure taxable income for this purpose without the following. 1040 ez online filing The deduction for charitable contributions. 1040 ez online filing The dividends-received deduction. 1040 ez online filing The deduction allowed under section 249 of the Internal Revenue Code. 1040 ez online filing The domestic production activities deduction. 1040 ez online filing Any net operating loss carryback to the tax year. 1040 ez online filing Any capital loss carryback to the tax year. 1040 ez online filing Farmers and ranchers. 1040 ez online filing Corporations that are farmers and ranchers should see section 170(b)(2) of the Internal Revenue Code for special rules that may affect the deduction limit. 1040 ez online filing Carryover of excess contributions. 1040 ez online filing You can carry over, within certain limits, to each of the subsequent 5 years any charitable contributions made during the current year that exceed the 10% limit. 1040 ez online filing You lose any excess not used within that period. 1040 ez online filing For example, if a corporation has a carryover of excess contributions paid in 2010 and it does not use all the excess on its return for 2011, it can carry any excess over to 2012, 2013, 2014, and 2015, if applicable. 1040 ez online filing Any excess not used in 2015 is lost. 1040 ez online filing Do not deduct a carryover of excess contributions in the carryover year until after you deduct contributions made in that year (subject to the 10% limit). 1040 ez online filing You cannot deduct a carryover of excess contributions to the extent it increases a net operating loss carryover. 1040 ez online filing Cash contributions. 1040 ez online filing A corporation must maintain a record of any contribution of cash, check, or other monetary contribution, regardless of the amount. 1040 ez online filing The record can be a bank record, receipt, letter, or other written communication from the donee indicating the name of the organization, the date of the contribution, and the amount of the contribution. 1040 ez online filing Keep the record of the contribution with the other corporate records. 1040 ez online filing Do not attach the records to the corporation's return. 1040 ez online filing For more information on cash contributions, see Publication 526. 1040 ez online filing Gifts of $250 or more. 1040 ez online filing Generally, no deduction is allowed for any contribution of $250 or more unless the corporation gets a written acknowledgement from the donee organization. 1040 ez online filing The acknowledgement should show the amount of cash contributed, a description of the property contributed, and either gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution or states that no goods or services were provided in return for the contribution. 1040 ez online filing The acknowledgement should be received by the due date (including extensions) of the return, or, if earlier, the date the return was filed. 1040 ez online filing Keep the acknowledgement with other corporate records. 1040 ez online filing Do not attach the acknowledgement to the return. 1040 ez online filing Contributions of property other than cash. 1040 ez online filing If a corporation (other than a closely-held or a personal service corporation) claims a deduction of more than $500 for contributions of property other than cash, a schedule describing the property and the method used to determine its fair market value must be attached to the corporation's return. 1040 ez online filing In addition the corporation should keep a record of: The approximate date and manner of acquisition of the donated property and The cost or other basis of the donated property held by the donor for less than 12 months prior to contribution. 1040 ez online filing Closely held and personal service corporations must complete and attach Form 8283, Noncash Charitable Contributions, to their returns if they claim a deduction of more than $500 for non-cash contributions. 1040 ez online filing For all other corporations, if the deduction claimed for donated property exceeds $5,000, complete Form 8283 and attach it to the corporation's return. 1040 ez online filing A corporation must obtain a qualified appraisal for all deductions of property claimed in excess of $5,000. 1040 ez online filing A qualified appraisal is not required for the donation of cash, publicly traded securities, inventory, and any qualified vehicles sold by a donee organization without any significant intervening use or material improvement. 1040 ez online filing The appraisal should be maintained with other corporate records and only attached to the corporation's return when the deduction claimed exceeds $500,000; $20,000 for donated art work. 1040 ez online filing See Form 8283 for more information. 1040 ez online filing Qualified conservation contributions. 1040 ez online filing If a corporation makes a qualified conservation contribution, the corporation must provide information regarding the legal interest being donated, the fair market value of the underlying property before and after the donation, and a description of the conservation purpose for which the property will be used. 1040 ez online filing For more information, see section 170(h) of the Internal Revenue Code. 1040 ez online filing Contributions of used vehicles. 1040 ez online filing A corporation is allowed a deduction for the contribution of used motor vehicles, boats, and airplanes. 1040 ez online filing The deduction is limited, and other special rules apply. 1040 ez online filing For more information, see Publication 526. 1040 ez online filing Reduction for contributions of certain property. 1040 ez online filing For a charitable contribution of property, the corporation must reduce the contribution by the sum of: The ordinary income and short-term capital gain that would have resulted if the property were sold at its FMV and For certain contributions, the long-term capital gain that would have resulted if the property were sold at its FMV. 1040 ez online filing The reduction for the long-term capital gain applies to: Contributions of tangible personal property for use by an exempt organization for a purpose or function unrelated to the basis for its exemption; Contributions of any property to or for the use of certain private foundations except for stock for which market quotations are readily available; and Contributions of any patent, certain copyrights, trademark, trade name, trade secret, know-how, software (that is a section 197 intangible), or similar property, or applications or registrations of such property. 1040 ez online filing Larger deduction. 1040 ez online filing A corporation (other than an S corporation) may be able to claim a deduction equal to the lesser of (a) the basis of the donated inventory or property plus one-half of the inventory or property's appreciation (gain if the donated inventory or property was sold at fair market value on the date of the donation), or (b) two times basis of the donated inventory or property. 1040 ez online filing This deduction may be allowed for certain contributions of: Certain inventory and other property made to a donee organization and used solely for the care of the ill, the needy, and infants. 1040 ez online filing Scientific property constructed by the corporation (other than an S corporation, personal holding company, or personal service corporation) and donated no later than 2 years after substantial completion of the construction. 1040 ez online filing The property must be donated to a qualified organization and its original use must be by the donee for research, experimentation, or research training within the United States in the area of physical or biological science. 1040 ez online filing Computer technology and equipment acquired or constructed and donated no later than 3 years after either acquisition or substantial completion of construction to an educational organization for educational purposes within the United States. 1040 ez online filing Contributions to organizations conducting lobbying activities. 1040 ez online filing Contributions made to an organization that conducts lobbying activities are not deductible if: The lobbying activities relate to matters of direct financial interest to the donor's trade or business and The principal purpose of the contribution was to avoid federal income tax by obtaining a deduction for activities that would have been nondeductible under the lobbying expense rules if conducted directly by the donor. 1040 ez online filing More information. 1040 ez online filing For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 of the Internal Revenue Code, the related regulations, and Publication 526. 1040 ez online filing Capital Losses A corporation can deduct capital losses only up to the amount of its capital gains. 1040 ez online filing In other words, if a corporation has an excess capital loss, it cannot deduct the loss in the current tax year. 1040 ez online filing Instead, it carries the loss to other tax years and deducts it from any net capital gains that occur in those years. 1040 ez online filing A capital loss is carried to other years in the following order. 1040 ez online filing 3 years prior to the loss year. 1040 ez online filing 2 years prior to the loss year. 1040 ez online filing 1 year prior to the loss year. 1040 ez online filing Any loss remaining is carried forward for 5 years. 1040 ez online filing When you carry a net capital loss to another tax year, treat it as a short-term loss. 1040 ez online filing It does not retain its original identity as long term or short term. 1040 ez online filing Example. 1040 ez online filing A calendar year corporation has a net short-term capital gain of $3,000 and a net long-term capital loss of $9,000. 1040 ez online filing The short-term gain offsets some of the long-term loss, leaving a net capital loss of $6,000. 1040 ez online filing The corporation treats this $6,000 as a short-term loss when carried back or forward. 1040 ez online filing The corporation carries the $6,000 short-term loss back 3 years. 1040 ez online filing In year 1, the corporation had a net short-term capital gain of $8,000 and a net long-term capital gain of $5,000. 1040 ez online filing It subtracts the $6,000 short-term loss first from the net short-term gain. 1040 ez online filing This results in a net capital gain for year 1 of $7,000. 1040 ez online filing This consists of a net short-term capital gain of $2,000 ($8,000 − $6,000) and a net long-term capital gain of $5,000. 1040 ez online filing S corporation status. 1040 ez online filing A corporation may not carry a capital loss from, or to, a year for which it is an S corporation. 1040 ez online filing Rules for carryover and carryback. 1040 ez online filing When carrying a capital loss from one year to another, the following rules apply. 1040 ez online filing When figuring the current year's net capital loss, you cannot combine it with a capital loss carried from another year. 1040 ez online filing In other words, you can carry capital losses only to years that would otherwise have a total net capital gain. 1040 ez online filing If you carry capital losses from 2 or more years to the same year, deduct the loss from the earliest year first. 1040 ez online filing You cannot use a capital loss carried from another year to produce or increase a net operating loss in the year to which you carry it back. 1040 ez online filing Refunds. 1040 ez online filing When you carry back a capital loss to an earlier tax year, refigure your tax for that year. 1040 ez online filing If your corrected tax is less than the tax you originally owed, use either Form 1139, Corporate Application for Tentative Refund, or Form 1120X, Amended U. 1040 ez online filing S. 1040 ez online filing Corporation Income Tax Return, to apply for a refund. 1040 ez online filing Form 1139. 1040 ez online filing A corporation can get a refund faster by using Form 1139. 1040 ez online filing It cannot file Form 1139 before filing the return for the corporation's capital loss year, but it must file Form 1139 no later than 1 year after the year it sustains the capital loss. 1040 ez online filing Form 1120X. 1040 ez online filing If the corporation does not file Form 1139, it must file Form 1120X to apply for a refund. 1040 ez online filing The corporation must file the Form 1120X within 3 years of the due date, includin

Health Insurance Overview

Health care is expensive and few individuals can afford to pay the full costs. Having health insurance allows you to get the treatment you need without incurring huge medical bills.

Most Americans have private health insurance or participate in public programs, such as Medicare or Medicaid, but many Americans are uninsured due to finances and/or pre-existing conditions.

Under the Affordable Care Act, all Americans will be able to get health insurance regardless of income or health history.

Affordable Care Act

The Affordable Care Act allows all Americans to get comprehensive health insurance and offers new rights and protections. Some provisions of the law have already taken effect while others will be implemented in the coming years.

You can now enroll in health insurance through your state's Health Insurance Marketplace. The Marketplace can help you compare plans and find one that fits your needs and budget.

Medicaid

States decide on the benefits provided under Medicaid, but Medicaid usually provides health care for low-income children and families, and people with disabilities. Covered services usually include doctor visits, hospital care, vaccinations, prescription drugs, vision, hearing, long-term care, and preventive care for children.

State Medicaid Programs – Learn about the Medicaid program in your state, and how to apply. Note that if you're not eligible for Medicaid now, you may qualify in 2014, when new rules take effect in most states.

Medicare

Medicare is a government health insurance plan for people 65 or older, people under 65 with certain disabilities, and people with end-stage renal disease. Medicare helps to pay for care in hospitals, skilled nursing facilities, hospice care, and some home health care. Coverage can also include doctors’ services and prescription drugs.

Under the health care law, Medicare benefits have been expanded for preventive care and drug coverage. Medicare is not part of the Health Insurance Marketplace, so—if you have Medicare—you will not need to take any action as a result of the new Marketplace.

COBRA: Keep Your Insurance If You Leave Your Job

The Consolidated Omnibus Budget Reconciliation Act (COBRA) can help you temporarily keep your health insurance even though you left your job. Eligibility for the program is based on the reason you left your job, and even if you get to keep your insurance, you may be required to pay the entire premium for coverage.

Health Insurance for Children: CHIP

The Children’s Health Insurance Program (CHIP) provides free or low-cost health coverage for low-income children. Each state decides on the benefits provided under CHIP, but all states cover routine check-ups, immunizations, hospital care, dental care, and lab and x-ray services.

How to Appeal a Health Insurance Claim

If your health insurer has denied coverage for medical care you received, you have the right to appeal the claim, and ask that the company reverse that decision. You can be your own health care advocate. Follow these five steps:

Review your policy and explanation of benefits.

Contact your insurer and keep detailed records of your contacts (copies of letters, time and date of conversations).

Request documentation from your doctor or employer to support your case.

Write a formal complaint letter explaining what care was denied and why you are appealing through use of the company's internal review process.

If the internal appeal is not granted through step four, file a claim with your state's insurance department.

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The 1040 Ez Online Filing

1040 ez online filing 3. 1040 ez online filing Lifetime Learning Credit Table of Contents Introduction Can You Claim the CreditWho Can Claim the Credit Who Cannot Claim the Credit What Expenses QualifyQualified Education Expenses No Double Benefit Allowed Expenses That Do Not Qualify Who Is an Eligible Student Who Can Claim a Dependent's Expenses Figuring the CreditEffect of the Amount of Your Income on the Amount of Your Credit Claiming the Credit Introduction For 2013, there are two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax. 1040 ez online filing They are the American opportunity credit and the lifetime learning credit. 1040 ez online filing This chapter discusses the lifetime learning credit. 1040 ez online filing The American opportunity credit is discussed in chapter 2, The American Opportunity Credit . 1040 ez online filing This chapter explains: Who can claim the lifetime learning credit, What expenses qualify for the credit, Who is an eligible student, Who can claim a dependent's expenses, How to figure the credit, How to claim the credit, and When the credit must be repaid. 1040 ez online filing What is the tax benefit of the lifetime learning credit. 1040 ez online filing For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. 1040 ez online filing There is no limit on the number of years the lifetime learning credit can be claimed for each student. 1040 ez online filing A tax credit reduces the amount of income tax you may have to pay. 1040 ez online filing Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. 1040 ez online filing The lifetime learning credit is a nonrefundable credit. 1040 ez online filing This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you. 1040 ez online filing Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax. 1040 ez online filing Can you claim more than one education credit this year. 1040 ez online filing For each student, you can elect for any year only one of the credits. 1040 ez online filing For example, if you elect to take the lifetime learning credit for a child on your 2013 tax return, you cannot, for that same child, also claim the American opportunity credit for 2013. 1040 ez online filing If you are eligible to claim the lifetime learning credit and you are also eligible to claim the American opportunity credit for the same student in the same year, you can choose to claim either credit, but not both. 1040 ez online filing If you pay qualified education expenses for more than one student in the same year, you can choose to take certain credits on a per-student, per-year basis. 1040 ez online filing This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. 1040 ez online filing Differences between the American opportunity and lifetime learning credits. 1040 ez online filing There are several differences between these two credits. 1040 ez online filing For example, you can claim the American opportunity credit for the same student for no more than 4 tax years, but any year in which the Hope Scholarship Credit was claimed counts toward the 4 years. 1040 ez online filing However, there is no limit on the number of years for which you can claim a lifetime learning credit based on the same student's expenses. 1040 ez online filing The differences between these credits are shown in Appendix B, Highlights of Education Tax Benefits for Tax Year 2013 near the end of this publication. 1040 ez online filing Overview of the lifetime learning credit. 1040 ez online filing See Table 3-1, Overview of the Lifetime Learning Credit for the basics of the lifetime learning credit. 1040 ez online filing The details are discussed in this chapter. 1040 ez online filing Can You Claim the Credit The following rules will help you determine if you are eligible to claim the lifetime learning credit on your tax return. 1040 ez online filing Who Can Claim the Credit Generally, you can claim the lifetime learning credit if all three of the following requirements are met. 1040 ez online filing You pay qualified education expenses of higher education. 1040 ez online filing You pay the education expenses for an eligible student. 1040 ez online filing The eligible student is either yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. 1040 ez online filing Table 3-1. 1040 ez online filing Overview of the Lifetime Learning Credit Maximum credit Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $127,000 if married filling jointly; $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable Nonrefundable—credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available for an unlimited number of years Type of program required Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Available for one or more courses Felony drug conviction Felony drug convictions do not make the student ineligible Qualified expenses Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Note. 1040 ez online filing Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you. 1040 ez online filing “Qualified education expenses” are defined later under Qualified Education Expenses . 1040 ez online filing “Eligible students” are defined later under Who Is an Eligible Student . 1040 ez online filing A dependent for whom you claim an exemption is defined later under Who Can Claim a Dependent's Expenses . 1040 ez online filing You may find Figure 3-1, Can You Claim the Lifetime Learning Credit for 2013 , later, helpful in determining if you can claim a lifetime learning credit on your tax return. 1040 ez online filing Who Cannot Claim the Credit You cannot claim the lifetime learning credit for 2013 if any of the following apply. 1040 ez online filing Your filing status is married filing separately. 1040 ez online filing You are listed as a dependent on another person's tax return (such as your parents'). 1040 ez online filing See Who Can Claim a Dependent's Expenses , later. 1040 ez online filing Your modified adjusted gross income (MAGI) is $63,000 or more ($127,000 or more in the case of a joint return). 1040 ez online filing MAGI is explained later under Effect of the Amount of Your Income on the Amount of Your Credit . 1040 ez online filing You (or your spouse) were a nonresident alien for any part of 2013 and the nonresident alien did not elect to be treated as a resident alien for tax purposes. 1040 ez online filing More information on nonresident aliens can be found in Publication 519. 1040 ez online filing You claim the American Opportunity Credit (see chapter 2) or a Tuition and Fees Deduction (see chapter 6) for the same student in 2013. 1040 ez online filing What Expenses Qualify The lifetime learning credit is based on qualified education expenses you pay for yourself, your spouse, or a dependent for whom you claim an exemption on your tax return. 1040 ez online filing Generally, the credit is allowed for qualified education expenses paid in 2013 for an academic period beginning in 2013 or in the first 3 months of 2014. 1040 ez online filing For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 credit. 1040 ez online filing Academic period. 1040 ez online filing An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. 1040 ez online filing In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. 1040 ez online filing Paid with borrowed funds. 1040 ez online filing You can claim a lifetime learning credit for qualified education expenses paid with the proceeds of a loan. 1040 ez online filing You use the expenses to figure the lifetime learning credit for the year in which the expenses are paid, not the year in which the loan is repaid. 1040 ez online filing Treat loan disbursements sent directly to the educational institution as paid on the date the institution credits the student's account. 1040 ez online filing Student withdraws from class(es). 1040 ez online filing You can claim a lifetime learning credit for qualified education expenses not refunded when a student withdraws. 1040 ez online filing Qualified Education Expenses For purposes of the lifetime learning credit, qualified education expenses are tuition and certain related expenses required for enrollment in a course at an eligible educational institution. 1040 ez online filing The course must be either part of a postsecondary degree program or taken by the student to acquire or improve job skills. 1040 ez online filing Eligible educational institution. 1040 ez online filing An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. 1040 ez online filing S. 1040 ez online filing Department of Education. 1040 ez online filing It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. 1040 ez online filing The educational institution should be able to tell you if it is an eligible educational institution. 1040 ez online filing Certain educational institutions located outside the United States also participate in the U. 1040 ez online filing S. 1040 ez online filing Department of Education's Federal Student Aid (FSA) programs. 1040 ez online filing Related expenses. 1040 ez online filing Student-activity fees and expenses for course-related books, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance. 1040 ez online filing Prepaid expenses. 1040 ez online filing Qualified education expenses paid in 2013 for an academic period that begins in the first three months of 2014 can be used in figuring an education credit for 2013 only. 1040 ez online filing See Academic period , earlier. 1040 ez online filing For example, you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). 1040 ez online filing You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). 1040 ez online filing In the following examples, assume that each student is an eligible student at an eligible educational institution. 1040 ez online filing Example 1. 1040 ez online filing Jackson is a sophomore in University V's degree program in dentistry. 1040 ez online filing This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. 1040 ez online filing Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson's equipment rental fee is a qualified expense. 1040 ez online filing Example 2. 1040 ez online filing Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. 1040 ez online filing The college has no policy about how students should obtain these materials, but any student who purchases them from College W's bookstore will receive a bill directly from the college. 1040 ez online filing Charles bought his books from a friend, so what he paid for them is not a qualified education expense. 1040 ez online filing Donna bought hers at College W's bookstore. 1040 ez online filing Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution. 1040 ez online filing Example 3. 1040 ez online filing When Marci enrolled at College X for her freshman year, she had to pay a separate student activity fee in addition to her tuition. 1040 ez online filing This activity fee is required of all students, and is used solely to fund on-campus organizations and activities run by students, such as the student newspaper and student government. 1040 ez online filing No portion of the fee covers personal expenses. 1040 ez online filing Although labeled as a student activity fee, the fee is required for Marci's enrollment and attendance at College X. 1040 ez online filing Therefore, it is a qualified expense. 1040 ez online filing No Double Benefit Allowed You cannot do any of the following: Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim a lifetime learning credit based on those same expenses. 1040 ez online filing Claim a lifetime learning credit in the same year that you are claiming a tuition and fees deduction for the same student. 1040 ez online filing Claim a lifetime learning credit and an American opportunity credit based on the same qualified education expenses. 1040 ez online filing Claim a lifetime learning credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). 1040 ez online filing See Coordination With American Opportunity and Lifetime Learning Credits in chapter 7, Coverdell Education Savings Account, and Coordination With American Opportunity and Lifetime Learning Credits in chapter 8, Qualified Tuition Program. 1040 ez online filing Claim a credit based on qualified education expenses paid with tax-free educational assistance, such as a scholarship, grant, or assistance provided by an employer. 1040 ez online filing See Adjustments to Qualified Education Expenses, next. 1040 ez online filing This image is too large to be displayed in the current screen. 1040 ez online filing Please click the link to view the image. 1040 ez online filing Figure 3-1 Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. 1040 ez online filing The result is the amount of adjusted qualified education expenses for each student. 1040 ez online filing Tax-free educational assistance. 1040 ez online filing For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. 1040 ez online filing See Academic period , earlier. 1040 ez online filing Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. 1040 ez online filing This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). 1040 ez online filing If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed , later. 1040 ez online filing If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed , later. 1040 ez online filing Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. 1040 ez online filing Generally, any scholarship or fellowship is treated as tax free. 1040 ez online filing However, a scholarship or fellowship is not treated as tax free to the extent the student includes it in gross income (if the student is required to file a tax return for the year the scholarship or fellowship is received) and either of the following is true. 1040 ez online filing The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 1040 ez online filing The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 1040 ez online filing You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year it is received. 1040 ez online filing For examples, see Coordination with Pell grants and other scholarships, later. 1040 ez online filing Refunds. 1040 ez online filing A refund of qualified education expenses may reduce adjusted qualified education expenses for the tax year or require repayment (recapture) of a credit claimed in an earlier year. 1040 ez online filing Some tax-free educational assistance received after 2013 may be treated as a refund. 1040 ez online filing See Tax-free educational assistance , earlier. 1040 ez online filing Refunds received in 2013. 1040 ez online filing For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses for 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. 1040 ez online filing Refunds received after 2013 but before your income tax return is filed. 1040 ez online filing If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid before you file an income tax return for 2013, the amount of qualified education expenses for 2013 is reduced by the amount of the refund. 1040 ez online filing Refunds received after 2013 and after your income tax return is filed. 1040 ez online filing If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is paid after you file an income tax return for 2013, you may need to repay some or all of the credit. 1040 ez online filing See Credit recapture, next. 1040 ez online filing Credit recapture. 1040 ez online filing If any tax-free educational assistance for the qualified education expenses paid in 2013 or any refund of your qualified education expenses paid in 2013 is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. 1040 ez online filing You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. 1040 ez online filing You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). 1040 ez online filing Include that amount as an additional tax for the year the refund or tax-free assistance was received. 1040 ez online filing Example. 1040 ez online filing You pay $9,300 in tuition and fees in December 2013, and your child began college in January 2014. 1040 ez online filing You filed your 2013 tax return on February 14, 2014, and claimed a lifetime learning credit of $1,860. 1040 ez online filing You claimed no other tax credits. 1040 ez online filing After you filed your return, your child withdrew from two courses and you received a refund of $2,900. 1040 ez online filing You must refigure your 2013 lifetime learning credit using $6,400 of qualified education expenses instead of $9,300. 1040 ez online filing The refigured credit is $1,280 and your tax liability increased by $580. 1040 ez online filing See instructions for your 2014 income tax return to determine where to include this tax. 1040 ez online filing If you pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. 1040 ez online filing Amounts that do not reduce qualified education expenses. 1040 ez online filing Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. 1040 ez online filing Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. 1040 ez online filing The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Qualified education expenses in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 1040 ez online filing The use of the money is not restricted. 1040 ez online filing For examples, see Adjustments to Qualified Education Expenses in chapter 2, American Opportunity Credit. 1040 ez online filing Coordination with Pell grants and other scholarships. 1040 ez online filing In some cases, you may be able to reduce your tax liability by including scholarships in income. 1040 ez online filing If you are claiming an education credit for a claimed dependent who received a scholarship, you may be able to reduce your tax liability if the student includes the scholarship in income. 1040 ez online filing The scholarship must be one that may (by its terms) be applied to expenses (such as room and board) other than qualified education expenses. 1040 ez online filing Example 1—No scholarship. 1040 ez online filing Judy Green, who is unmarried, is taking courses at a public community college to be recertified to teach in public schools. 1040 ez online filing Her AGI and her MAGI, for purposes of the credit, are $27,000. 1040 ez online filing Judy takes the standard deduction of $5,950 and personal exemption of $3,800, reducing her AGI to taxable income of $17,250 and her tax before credits is $2,156. 1040 ez online filing She claims no credits other than the lifetime learning credit. 1040 ez online filing In July 2013 she paid $700 for the summer 2013 semester; in August 2013 she paid $1,900 for the fall 2013 semester; and in December 2013 she paid another $1,900 for the spring semester beginning in January 2014. 1040 ez online filing Judy and the college meet all requirements for the lifetime learning tax credit. 1040 ez online filing She can use all of the $4,500 tuition she paid in 2013 when figuring her 2013 lifetime learning credit. 1040 ez online filing She claims a $900 lifetime learning credit and her tax after credits is $1,256. 1040 ez online filing Example 2—Scholarship excluded from income. 1040 ez online filing The facts are the same as in Example 1—No scholarship, except that Judy was awarded a $1,500 scholarship. 1040 ez online filing Under the terms of her scholarship, it may be used to pay any educational expenses, including room and board. 1040 ez online filing If Judy excludes the scholarship from income, she will be deemed (for purposes of computing her education credit) as having used the scholarship to pay for tuition, required fees, and course materials. 1040 ez online filing Only $3,000 of the $4,500 tuition she paid in 2013 could be used when figuring her 2013 lifetime learning credit. 1040 ez online filing Her lifetime learning credit would be reduced to $600 and her tax after credits would be $1,556. 1040 ez online filing Example 3—Scholarship included in income. 1040 ez online filing The facts are the same as in Example 2—Scholarship excluded from income. 1040 ez online filing If, unlike Example 2, Judy includes the $1,500 scholarship in income, she will be deemed to have used the entire scholarship to pay for room and board. 1040 ez online filing Judy's AGI will increase to $28,500, her taxable income would be $18,750, and her tax before credits would be $2,381. 1040 ez online filing She would be able to use the $4,500 of adjusted qualified education expenses to figure her credit. 1040 ez online filing Judy could claim a $900 lifetime learning credit and her tax after credits would be $1,481. 1040 ez online filing Expenses That Do Not Qualify Qualified education expenses do not include amounts paid for: Insurance, Medical expenses (including student health fees), Room and board, Transportation, or Similar personal, living, or family expenses. 1040 ez online filing This is true even if the amount must be paid to the institution as a condition of enrollment or attendance. 1040 ez online filing Sports, games, hobbies, and noncredit courses. 1040 ez online filing Qualified education expenses generally do not include expenses that relate to any course of instruction or other education that involves sports, games or hobbies, or any noncredit course. 1040 ez online filing However, if the course of instruction or other education is part of the student's degree program or is taken by the student to acquire or improve job skills, these expenses can qualify. 1040 ez online filing Comprehensive or bundled fees. 1040 ez online filing Some eligible educational institutions combine all of their fees for an academic period into one amount. 1040 ez online filing If you do not receive or do not have access to an allocation showing how much you paid for qualified education expenses and how much you paid for personal expenses, such as those listed above, contact the institution. 1040 ez online filing The institution is required to make this allocation and provide you with the amount you paid (or were billed) for qualified education expenses on Form 1098-T. 1040 ez online filing See Figuring the Credit , later, for more information about Form 1098-T. 1040 ez online filing Who Is an Eligible Student For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution (as defined under Qualified Education Expenses , earlier). 1040 ez online filing Who Can Claim a Dependent's Expenses If there are qualified education expenses for your dependent during a tax year, either you or your dependent, but not both of you, can claim a lifetime learning credit for your dependent's expenses for that year. 1040 ez online filing For you to claim a lifetime learning credit for your dependent's expenses, you must also claim an exemption for your dependent. 1040 ez online filing You do this by listing your dependent's name and other required information on Form 1040 (or Form 1040A), line 6c. 1040 ez online filing IF you. 1040 ez online filing . 1040 ez online filing . 1040 ez online filing THEN only. 1040 ez online filing . 1040 ez online filing . 1040 ez online filing claim an exemption on your tax return for a dependent who is an eligible student you can claim the lifetime learning credit based on that dependent's expenses. 1040 ez online filing The dependent cannot claim the credit. 1040 ez online filing do not claim an exemption on your tax return for a dependent who is an eligible student (even if entitled to the exemption) the dependent can claim the lifetime learning credit. 1040 ez online filing You cannot claim the credit based on this dependent's expenses. 1040 ez online filing Expenses paid by dependent. 1040 ez online filing If you claim an exemption on your tax return for an eligible student who is your dependent, treat any expenses paid (or deemed paid) by your dependent as if you had paid them. 1040 ez online filing Include these expenses when figuring the amount of your lifetime learning credit. 1040 ez online filing Qualified education expenses paid directly to an eligible educational institution for your dependent under a court-approved divorce decree are treated as paid by your dependent. 1040 ez online filing Expenses paid by you. 1040 ez online filing If you claim an exemption for a dependent who is an eligible student, only you can include any expenses you paid when figuring the amount of the lifetime learning credit. 1040 ez online filing If neither you nor anyone else claims an exemption for the dependent, only the dependent can include any expenses you paid when figuring the lifetime learning credit. 1040 ez online filing Expenses paid by others. 1040 ez online filing Someone other than you, your spouse, or your dependent (such as a relative or former spouse) may make a payment directly to an eligible educational institution to pay for an eligible student's qualified education expenses. 1040 ez online filing In this case, the student is treated as receiving the payment from the other person and, in turn, paying the institution. 1040 ez online filing If you claim an exemption on your tax return for the student, you are considered to have paid the expenses. 1040 ez online filing Example. 1040 ez online filing In 2013, Ms. 1040 ez online filing Allen makes a payment directly to an eligible educational institution for her grandson Todd's qualified education expenses. 1040 ez online filing For purposes of claiming a lifetime learning credit, Todd is treated as receiving the money from his grandmother and, in turn, paying his qualified education expenses himself. 1040 ez online filing Unless an exemption for Todd is claimed on someone else's 2013 tax return, only Todd can use the payment to claim a lifetime learning credit. 1040 ez online filing If anyone, such as Todd's parents, claims an exemption for Todd on his or her 2013 tax return, whoever claims the exemption may be able to use the expenses to claim a lifetime learning credit. 1040 ez online filing If anyone else claims an exemption for Todd, Todd cannot claim a lifetime learning credit. 1040 ez online filing Tuition reduction. 1040 ez online filing When an eligible educational institution provides a reduction in tuition to an employee of the institution (or spouse or dependent child of an employee), the amount of the reduction may or may not be taxable. 1040 ez online filing If it is taxable, the employee is treated as receiving a payment of that amount and, in turn, paying it to the educational institution on behalf of the student. 1040 ez online filing For more information on tuition reductions, see Qualified Tuition Reduction in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. 1040 ez online filing Figuring the Credit The amount of the lifetime learning credit is 20% of the first $10,000 of qualified education expenses you paid for all eligible students. 1040 ez online filing The maximum amount of lifetime learning credit you can claim for 2013 is $2,000 (20% × $10,000). 1040 ez online filing However, that amount may be reduced based on your MAGI. 1040 ez online filing See Effect of the Amount of Your Income on the Amount of Your Credit , later. 1040 ez online filing Example. 1040 ez online filing Bruce and Toni Harper are married and file a joint tax return. 1040 ez online filing For 2013, their MAGI is $75,000. 1040 ez online filing Toni is attending a local college (an eligible educational institution) to earn credits toward a degree in nursing. 1040 ez online filing She already has a bachelor's degree in history and wants to become a nurse. 1040 ez online filing In August 2013, Toni paid $5,000 of qualified education expenses for her fall 2013 semester. 1040 ez online filing Bruce and Toni can claim a $1,000 (20% × $5,000) lifetime learning credit on their 2013 joint tax return. 1040 ez online filing Form 1098-T. 1040 ez online filing To help you figure your lifetime learning credit, the student should receive Form 1098-T. 1040 ez online filing Generally, an eligible educational institution (such as a college or university) must send Form 1098-T (or acceptable substitute) to each enrolled student by January 31, 2014. 1040 ez online filing An institution may choose to report either payments received (box 1), or amounts billed (box 2), for qualified education expenses. 1040 ez online filing However, the amounts in boxes 1 and 2 of Form 1098-T might be different from what you paid. 1040 ez online filing When figuring the credit, use only the amounts you paid or are deemed to have paid in 2013 for qualified education expenses. 1040 ez online filing In addition, Form 1098-T should give other information for that institution, such as adjustments made for prior years, the amount of scholarships or grants, reimbursements or refunds, and whether the student was enrolled at least half-time or was a graduate student. 1040 ez online filing The eligible educational institution may ask for a completed Form W-9S, or similar statement to obtain the student's name, address, and taxpayer identification number. 1040 ez online filing Effect of the Amount of Your Income on the Amount of Your Credit The amount of your lifetime learning credit is phased out (gradually reduced) if your MAGI is between $53,000 and $63,000 ($107,000 and $127,000 if you file a joint return). 1040 ez online filing You cannot claim a lifetime learning credit if your MAGI is $63,000 or more ($127,000 or more if you file a joint return). 1040 ez online filing Modified adjusted gross income (MAGI). 1040 ez online filing For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. 1040 ez online filing MAGI when using Form 1040A. 1040 ez online filing If you file Form 1040A, your MAGI is the AGI on line 22 of that form. 1040 ez online filing MAGI when using Form 1040. 1040 ez online filing If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. 1040 ez online filing You can use Worksheet 3-1 to figure your MAGI. 1040 ez online filing Worksheet 3-1. 1040 ez online filing MAGI for the Lifetime Learning Credit 1. 1040 ez online filing Enter your adjusted gross income (Form 1040, line 38) 1. 1040 ez online filing 2. 1040 ez online filing Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 2. 1040 ez online filing 3. 1040 ez online filing Enter your foreign housing deduction (Form 2555, line 50) 3. 1040 ez online filing 4. 1040 ez online filing Enter the amount of income from Puerto Rico you are excluding 4. 1040 ez online filing 5. 1040 ez online filing Enter the amount of income from American Samoa you are excluding (Form 4563, line 15) 5. 1040 ez online filing 6. 1040 ez online filing Add the amounts on lines 2, 3, 4, and 5 6. 1040 ez online filing 7. 1040 ez online filing Add the amounts on lines 1 and 6. 1040 ez online filing This is your modified adjusted gross income. 1040 ez online filing Enter this amount on Form 8863, line 14 7. 1040 ez online filing Phaseout. 1040 ez online filing If your MAGI is within the range of incomes where the credit must be reduced, you will figure your reduced credit using lines 10-18 of Form 8863. 1040 ez online filing The same method is shown in the following example. 1040 ez online filing Example. 1040 ez online filing You are filing a joint return with a MAGI of $112,000. 1040 ez online filing In 2013, you paid $6,600 of qualified education expenses. 1040 ez online filing You figure the tentative lifetime learning credit (20% of the first $10,000 of qualified education expenses you paid for all eligible students). 1040 ez online filing The result is a $1,320 (20% x $6,600) tentative credit. 1040 ez online filing Because your MAGI is within the range of incomes where the credit must be reduced, you must multiply your tentative credit ($1,320) by a fraction. 1040 ez online filing The numerator of the fraction is $127,000 (the upper limit for those filing a joint return) minus your MAGI. 1040 ez online filing The denominator is $20,000, the range of incomes for the phaseout ($107,000 to $127,000). 1040 ez online filing The result is the amount of your phased out (reduced) lifetime learning credit ($990). 1040 ez online filing $1,320 × $127,000 − $112,000 $20,000 = $990 Claiming the Credit You claim the lifetime learning credit by completing Form 8863 and submitting it with your Form 1040 or 1040A. 1040 ez online filing Enter the credit on Form 1040, line 49, or Form 1040A, line 31. 1040 ez online filing Note. 1040 ez online filing In Appendix A, Illustrated Example of Education Credits at the end of this publication, there is an example illustrating the use of Form 8863 when both the American opportunity credit and the lifetime learning credit are claimed on the same tax return. 1040 ez online filing Prev Up Next Home More Online Publications